California running out of money
A $28 billion budget shortfall through 2010 could start to pinch next week.
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"Failure is not an option here," said Chiang, referring to the need to align state spending and revenues. "It would take years to recover ... deepening and prolonging the recession."Skip to next paragraph
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Bringing the budget back in line will require drastic cuts, significant tax raises, or both. Those options will harm the economy in the short run and cost the state jobs – but so would any delay in taking action, said legislative analyst Mac Taylor.
Not fixing the budget would worsen the state's credit rating, making infrastructure projects even harder to fund.
"It means that the stimulus that we all want won't occur," Lockyer said. "Millions of dollars that would have gone to thousands of private-sector businesses, creating tens of thousands of jobs, will be cut off."
Other states are stuck in similar positions of budget duress, making federal money key to jump-starting their economies, says Stephen Levy, director and senior economist at the Center for the Continuing Study of the California Economy.
Washington could also help California by backstopping state and local bonds with a federal guarantee. That would reassure investors, preventing the freeze-up in infrastructure projects. It would almost certainly cost the federal government nothing, says Mr. Levy. President-elect Obama hasn't advocated this yet, he adds, but his advisers are discussing the option.
Even with federal guarantees for bonds, lawmakers in Sacramento would still have to tackle the budget deficit, notes Levy.
During the joint session, members listened attentively, but their questions and statements afterward didn't reveal much softening of positions. Republicans signaled continued opposition to tax raises, while Democrats stressed they had already countenanced "devastating spending cuts" and some new revenue was needed. Democrats are a few seats shy of a full two-thirds majority needed to pass a budget on their own.
"It's not clear what my colleagues on the other side of the aisle want," said Karen Bass (D), speaker of the state Assembly, who helped organize Monday's joint session.
"I didn't hear anything that was new today," says Sen. Jeff Denham (R). "People around the state would expect us to deal with all of the waste first, get rid of all the bells and whistles."
To that end, he's proposing eliminating a $2 million waste-management board and supports selling state property, like San Quentin prison. He would close tax loopholes but wouldn't name any taxes he thought Republicans would be willing to raise.
"My guess is you can find a small number of Republican votes for additional taxes if there is a trade-off for some job and business incentives," says Mr. Schnur. Possible incentives include scrapping stringent 40-hour workweek regulations and scaling back on the state's ambitious greenhouse-gas targets, he says.